Wednesday, November 11, 2009

I am frequently asked if student loan debt is dischargeable in bankruptcy. Many non-bankruptcy lawyers believe that the bankruptcy laws had been changed so that student loan is no longer dischargeable by filing bankruptcy. That is not true. Although Congress may have made it more difficult to eliminate student loan debt, discharging student loan debt in bankruptcy is not impossible.

I read a very interesting opinion that was rendered by a Minnesota bankruptcy judge that discharged over $310,000 of student loan debt from a person who had completed college, medical school, and graduate school... and was healthy... and married... to a husband who made over $67,000 annually!!!!
So, there is hope for other people who owe student loan debt and cannot afford to repay it. Please contact me to discuss this case and other issues relating to the elimination of student loan debt or see my website at http://www.schallerlawfirm.com/student_loan_discharge.html . Below is a summary of the case to which I referred.

In re Walker v. Sallie Mae Servicing, 406 B.R. 840 (Bankr. D. Minn. 2009). Debtor discharged over $310,000 of student loan debt that she incurred while earning a bachelor’s degree at the University of Illinois, a medical degree at University of Illinois College of Medicine, and a master’s degree at Governors State University. Debtor was healthy and able to work, but stayed home to rear five children. Debtor’s husband held a full-time job as a policeman and a part-time job as a security officer. Debtor’s approximate household income was $67,000 annually.

In addition, within a year of filing the adversary proceeding to discharge the student loan debt, debtor’s spouse purchased a $40,000 new vehicle by incurring a vehicle loan with a monthly payment obligation of $850. Plus, debtor’s spouse signed a $50,000 second mortgage to build a 22-foot deck off their home with a monthly payment obligation of $372.

Nevertheless, the bankruptcy court rejected the objections to discharge argued by the student loan creditors, finding that debtor had provided sufficient evidence that the repayment of the student loan debt would have been an “undue hardship” on debtor and debtor’s dependents. The Walker Court applied the 8th Circuit’s “totality-of-the-circumstances” test. The court made note that the health of debtor’s twin approximately 9-year old sons was a major factor in its decision. The twins suffered with a form of child autism and were receiving intensive therapy offered by the state government for children with autism.

Surprising, the court allowed the discharge finding that the debtor had overcome debtor’s burden of proving “undue hardship” without calling an expert witnesses for an opinion as to the sons’ status and prognosis from the perspective of medicine/psychology or education. Nevertheless, the $310,000 student loan debt was discharged.

NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.

Tuesday, November 3, 2009

The Bankruptcy Code does provide for the elimination or “discharge” of student loan debt under certain circumstances. However, you also ought to consider non-bankruptcy options for eliminating or discharging student loan debt. A skilled bankruptcy attorney should be able to help you understand both options.

The review of each student loan bankruptcy case is fact intensive since the courts must decide whether to discharge or not discharge student loan debt on a case-by-case basis. I urge you to analyze my other student loan blog entries [found in the blog archive to the right] for a review of case law regarding the discharging of student loan debt. Also, you can go to my website at http://www.schallerlawfirm.com/student_loan_discharge.html to read more information about discharging student loan debts.

In a nutshell, the bankruptcy option is available for any student loan debtor who could make a three-part showing demonstrating that the payment of the student loan debt would be an undue burden upon the debtor and the debtor’s dependents. The three-part test requires a showing---

1. That the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the loans;

2. That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

3. That the debtor has made good faith efforts to repay the loans.

For some people, a non-bankruptcy option may be their best choice. While for others, a bankruptcy filing may be what’s best for them. Before making a decision, you should seek the counsel of a skilled bankruptcy attorney to help guide you through the thorny path of eliminating student loan debt.

NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.